COVID-19 recession

COVID-19 recession
The COVID-19 recession, also known as the Great Lockdown, was a global economic recession caused by the COVID-19 pandemic. The recession began in most countries in February 2020. After a year of global economic slowdown that saw stagnation of economic growth and consumer activity, the COVID-19 lockdowns and other precautions taken in early 2020 drove the global economy into crisis. Within seven months, every advanced economy had fallen to recession.
The first major sign of recession was the 2020 stock market crash, which saw major indices drop 20 to 30% in late February and March. Recovery began in early April 2020; by April 2022, the GDP for most major economies had either returned to or exceeded pre-pandemic levels and many market indices recovered or even set new records by late 2020.
The recession saw unusually high and rapid increases in unemployment in many countries. By October 2020, more than 10 million unemployment cases had been filed in the United States, swamping state-funded unemployment insurance computer systems and processes. The United Nations (UN) predicted in April 2020 that global unemployment would wipe out 6.7% of working hours globally in the second quarter of 2020—equivalent to 195 million full-time workers. In some countries, unemployment was expected to be around 10%, with more severely affected nations from the pandemic having higher unemployment rates. Developing countries were also affected by a drop in remittances and exacerbating COVID-19 pandemic-related famines.
The recession and the accompanying 2020 Russia–Saudi Arabia oil price war led to a drop in oil prices; the collapse of tourism, the hospitality industry, and the energy industry; and a downturn in consumer activity in comparison to the previous decade. The 2021–2023 global energy crisis was driven by a global surge in demand as the world exited the early recession caused by the pandemic, particularly due to strong energy demand in Asia.
This was then further exacerbated by the reaction to escalations of the Russo-Ukrainian War, culminating in the Russian invasion of Ukraine and the 2022 Russian debt default.
Background
Corporate debt bubble
Since the financial crisis of 2007–2008, there has been a large increase in corporate debt, rising from 84% of gross world product in 2009 to 92% in 2019, or about $72 trillion. In the world's eight largest economies—China, United States, Japan, United Kingdom, France, Spain, Italy, and Germany—total corporate debt was about $51 trillion in 2019, compared to $34 trillion in 2009. If the economic climate worsens, companies with high levels of debt run the risk of being unable to make their interest payments to lenders or refinance their debt, forcing them into restructuring. The Institute of International Finance forecast in 2019 that, in an economic downturn half as severe as the 2008 crisis, $19 trillion in debt would be owed by non-financial firms without the earnings to cover the interest payments on the debt they issued. The McKinsey Global Institute warned in 2018 that the greatest risks would be to emerging markets such as China, India, and Brazil, where 25–30% of bonds have been issued by high-risk companies.
2019 global economic slowdown
During 2019, the IMF reported that the world economy was going through a "synchronized slowdown", which entered into its slowest pace since the Global Financial Crisis. 'Cracks' were showing in the consumer market as global markets began to suffer through a 'sharp deterioration' of manufacturing activity. Global growth was believed to have peaked in 2017, when the world's total industrial output began to start a sustained decline in early 2018. The IMF blamed 'heightened trade and geopolitical tensions' as the main reason for the slowdown, citing Brexit and the China–United States trade war as primary reasons for slowdown in 2019, while other economists blamed liquidity issues.
In April 2019, the U.S. yield curve inverted, which sparked fears of a 2020 recession across the world. The inverted yield curve and China–U.S. trade war fears prompted a sell-off in global stock markets during March 2019, which prompted more fears that a recession was imminent. Rising debt levels in the European Union and the United States had always been a concern for economists. However, in 2019, that concern was heightened during the economic slowdown, and economists began warning of a 'debt bomb' occurring during the next financial crisis. Debt in 2019 was 50% higher than that during the financial crisis of 2007–2008. Economists have argued that this increased debt is what led to debt defaults in economies and businesses across the world during the recession. The first signs of trouble leading up to the collapse occurred in September 2019, when the US Federal Reserve began intervening in the role of investor to provide funds in the repo markets; the overnight repo rate spiked above an unprecedented 6% during that time, which would play a crucial factor in triggering the events that led up to the crash.
China–United States trade war
The China–United States trade war occurred from 2018 to early 2020, and caused significant damage across global economies. In 2018, U.S. President Donald Trump began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. describes as "unfair trade practices". Among those trade practices and their effects are the growing trade deficit, the theft of intellectual property, and the forced transfer of American technology to China.
In the United States, the trade war brought struggles for farmers and manufacturers and higher prices for consumers, which resulted in the U.S. manufacturing industry entering into a "mild recession" during 2019. In other countries it has also caused economic damage, including violent protests in Chile and Ecuador due to transport and energy price surges, though some countries have benefited from increased manufacturing to fill the gaps. It has also led to stock market instability. The governments of several countries, including China and the United States, have taken steps to address some of the damage caused by a deterioration in China–United States relations and tit for tat tariffs. During the recession, the downturn of consumerism and manufacturing from the trade war is believed to have worsened the economic crisis.
Brexit
In Europe, economies were hampered due to uncertainty surrounding the United Kingdom's withdrawal from the European Union, better known as Brexit. British and EU growth stagnated during 2019 leading up to Brexit, mainly due to uncertainty in the UK caused by political figures and movements aiming to oppose, reverse or otherwise impede the 2016 Brexit Referendum, resulting in delays and extensions. Many businesses left the United Kingdom to move into the EU, which resulted in trade loss and economic downturn for both EU members and the UK.
Aggravating circumstances
Evergrande liquidity crisis in 2021
In August 2021, it was reported that China's second-largest property developer, Evergrande Group, was entrenched in $300 billion (~$ in ) of debt. As the company missed several payment deadlines in September 2021, it seemed likely the company would fail without government intervention, as stocks within the company having already plummeted by 85%. Since China is the second largest economy in the world and property makes up a large amount of their GDP, it threatens to destabilise the COVID-19 recession even further, especially considering China is currently deep within a housing bubble eclipsing the United States housing bubble that led to the previous global recession.
2021–2023 global energy crisis and sanctions on Russia
The 2021–2022 global energy shortage is the most recent in a series of cyclical energy shortages experienced over the last fifty years. The Russian military buildup outside Ukraine and subsequent invasion have also threatened the energy supply from Russia to Europe, while increasing the cost of oil causing European countries to diversify their source of energy import.
The economic fallout from the 2021–2023 global energy crisis and the 2022 Russian invasion of Ukraine has had an impact on oil prices worldwide, most notably the unprecedented measures taken on the SWIFT System and Tit-for-Tat Responses to comprehensive sanctions from other countries. Preceding an official announcement regarding import bans on 8 March 2022, there were reports of proposed bans regarding Russian oil and gas imports by the US and the EU.
This was in addition to the already existing actions taken by American companies on multiple Russian entities with ties to the Russian government, with Russia's trading status also being called into question on security grounds. Prior to the ban having been implemented, the value of the Russian ruble had dropped by record levels as the price of oil hit a 14-year high. The talks about whether or not to implement an International Energy Embargo were already reported to have been impacting the Russian oil market due to pre-existing fears by investors by 10 March, there were reports stating that Russia's debt rating was downgraded by Fitch from "B" to "C", indicating a potential default was imminent. This ultimately came to pass after 27 June with the 2022 Russian debt default.
Causes
The COVID-19 pandemic is the most disruptive pandemic since the Spanish flu in 1918. When the pandemic first arose in late 2019 and more consequently in 2020, the world was going through economic stagnation and significant consumer downturn. Most economists believed a recession, though one which would not be particularly severe, was coming. As a result of the rapid spread of the pandemic, economies across the world initiated population lockdowns to curb the spread of the pandemic. This resulted in the collapse of various industries and consumerism all at once, which put major pressure on banks and employment. This caused a stock market crash and, thereafter, the recession. With new social distancing measures taken in response to the pandemic, lockdowns occurred across much of the world economy.
COVID-19 pandemic
The COVID-19 pandemic was a pandemic of Coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2); the outbreak was identified in Wuhan, China, in December 2019, declared to be a Public Health Emergency of International Concern from 30 January 2020 to May 5, 2023, and recognized as a pandemic by the World Health Organization on 11 March 2020. The pandemic has led to severe global economic disruption, the postponement or cancellation of sporting, religious, political and cultural events, and widespread shortages of supplies exacerbated by panic buying. Schools, universities and colleges have closed either on a nationwide or local basis in countries, affecting approximately percent of the world's student population. Many governments have restricted or advised against all non-essential travel to and from countries and areas affected by the outbreak. However, the virus is already spreading within communities in large parts of the world, with many not knowing where or how they were infected.
The COVID-19 pandemic has had far-reaching consequences beyond the spread of the disease and efforts to quarantine it. As the pandemic has spread around the globe, concerns have shifted from supply-side manufacturing issues to decreased business in the services sector. The pandemic is considered unanimously as a major factor in causing the recession. The pandemic has affected nearly every major industry negatively, was one of the main causes of the stock market crash and has resulted in major restrictions of social liberties and movement.
The COVID-19 crisis affected worldwide economic activity, resulting in a 7% drop in global commercial commerce in 2020. While GVCs have persisted, several demand and supply mismatches caused by the pandemic have resurfaced throughout the recovery period and have been spread internationally through trade.
During the first wave of the COVID-19 pandemic, businesses lost 25% of their revenue and 11% of their workforce, with contact-intensive sectors and SMEs being particularly heavily impacted. However, considerable policy assistance helped to avert large-scale bankruptcies, with just 4% of enterprises declaring for insolvency or permanently shutting at the time of the COVID wave.
Aid to people and businesses in the form of employment retention schemes, subsidies, tax relief, and loan guarantee programs totalled roughly 9% of GDP, with substantial cross-country variance, which might reflect policy space and development levels. In the face of considerable liquidity challenges, debt moratoriums and revisions to bankruptcy rules also safeguarded businesses and people during the COVID-19 pandemic.
In response to the pandemic's high infection rates and death toll, countries in the Western Balkans, the Eastern Neighbourhood, and Central and Eastern Europe faced severe recessions.
Lockdowns
While stay-at-home orders clearly affect many types of business, especially those that provide in-person services (including retail stores, restaurants and hotels, entertainment venues and museums, medical offices, and beauty salons and spas), government orders are not the sole pressure on those businesses. In the United States, people began to change their economic behavior 10–20 days before their local governments declared stay-at-home orders, and by May, changes in individuals' rates of movement (according to smartphone data) did not always correlate with local laws. According to a 2021 study, only 7% of the decline in economic activity was due to government-imposed restrictions on activity; the vast majority of the decline was due to individuals voluntarily disengaging from commerce.
Russia–Saudi Arabia oil price war
The reduction in the demand for travel and the lack of factory activity due to the COVID-19 pandemic significantly impacted demand for oil, causing its price to fall. The Russian–Saudi Arabia oil price war further worsened the recession, due to it crashing the price of oil. In mid-February, the International Energy Agency forecasted that oil demand growth in 2020 would be the smallest since 2011. A slump in Chinese demand resulted in a meeting of the Organization of the Petroleum Exporting Countries (OPEC) to discuss a potential cut in production to balance the loss in demand. The cartel initially made a tentative agreement to cut oil production by 1.5 million barrels per day following a meeting in Vienna on 5March 2020, which would bring the production levels to the lowest it has been since the Iraq War.
After OPEC and Russia failed to agree on oil production cuts on 6March and Saudi Arabia and Russia both announced increases in oil production on 7 March, oil prices fell by 25 percent. On 8March, Saudi Arabia unexpectedly announced that it would increase production of crude oil and sell it at a discount (of $6–8 a barrel) to customers in Asia, the US, and Europe, following the breakdown of negotiations, as Russia resisted calls to cut production. The biggest discounts targeted Russian oil customers in northwestern Europe.
Prior to the announcement, the price of oil had gone down by more than 30% since the start of the year, and upon Saudi Arabia's announcement, it dropped a further 30 percent, though later recovered somewhat. Brent Crude, an oil market used to price two-thirds of the world's crude oil supplies, experienced the largest drop since the 1991 Gulf War on the night of 8March. Concurrently, the price of West Texas Intermediate, another market used as a benchmark for global oil prices, fell to its lowest level since February 2016. Energy expert Bob McNally noted, "This is the first time since 1930 and '31 that a massive negative demand shock has coincided with a supply shock;" in that case it was the Smoot–Hawley Tariff Act precipitating a collapse in international trade during the Great Depression, coinciding with discovery of the East Texas Oil Field during the Texas oil boom. Fears surrounding the Russian–Saudi Arabian oil price war caused a plunge in U.S. stocks, and have had a particular impact on American producers of shale oil.
In early April 2020, Saudi Arabia and Russia both agreed to cut their oil production. Reuters reported that "If Saudi Arabia failed to rein in output, US senators called on the White House to impose sanctions on Riyadh, pull out US troops from the kingdom and impose import tariffs on Saudi oil." The price of oil briefly went negative on 20 April 2020.
Financial crisis
The 2020 stock market crash began on 20 February 2020, although the economic aspects of the COVID-19 recession began to materialize in late 2019. Due to the COVID-19 pandemic, global markets, banks and businesses were all facing crises not seen since the Great Depression in 1929.
From 24 to 28 February, stock markets declined the most in a week since the financial crisis of 2007–2008, thus entering a correction. Global markets into early March became extremely volatile, with large swings occurring. On 9 March, most global markets reported severe contractions, mainly in response to the COVID-19 pandemic and an oil price war between Russia and the OPEC countries led by Saudi Arabia. This became colloquially known as Black Monday I, and at the time was the worst drop since the Great Recession in 2008.
Three days after Black Monday I there was another drop, Black Thursday, where stocks across Europe and North America fell more than 9%. Wall Street experienced its largest single-day percentage drop since Black Monday in 1987, and the FTSE MIB of the Borsa Italiana fell nearly 17%, becoming the worst-hit market during Black Thursday. Despite a temporary rally on 13 March (with markets posting their best day since 2008), all three Wall Street indexes fell more than 12% when markets re-opened on 16 March. During this time, one benchmark stock market index in all G7 countries and 14 of the G20 countries had been declared to be in Bear markets.
Black Monday I (9 March)
Crash
Prior to opening, the Dow Jones Industrial Average futures market experienced a 1,300-point drop based on the pandemic and fall in the oil price described above, triggering a trading curb, or circuit breaker, that caused the futures market to suspend trading for 15 minutes. This predicted 1,300-point drop on 9March would be among the most points the Dow Jones Industrial Average has dropped in a single day. When the market opened on 9March, the Dow Jones Industrial Average plummeted 1800 points on opening, 500 points lower than the prediction.
The United States' Dow Jones Industrial Average lost more than 2000 points, described by The News International as "the biggest ever fall in intraday trading". The Dow Jones Industrial Average hit a number of trading "circuit breakers" to curb panicked selling. Oil firms Chevron and ExxonMobil fell about 15%. The Nasdaq Composite, also in the United States, lost over 620 points. The S&P 500 fell by 7.6%. Oil prices fell 22%, and the yields on 10-year and 30-year U.S. Treasury securities fell below 0.40% and 1.02% respectively. Canada's S&P/TSX Composite Index finished the day off by more than 10%. Brazil's IBOVESPA gave up 12%, erasing over 15 months of gains for the index. Australia's ASX 200 lost 7.3%—its biggest daily drop since 2008, though it rebounded later in the day. London's FTSE 100 lost 7.7%, suffering its worst drop since the 2008 financial crisis. BP and Shell Oil experienced intraday price drops of nearly 20% The FTSE MIB, CAC 40, and DAX tanked as well, with Italy affected the most as the COVID-19 pandemic in the country continues. They fell 11.2%, 8.4%, and 7.9% respectively. The STOXX Europe 600 fell to more than 20% below its peak earlier in the year.
In a number of Asian markets—Japan, Singapore, the Philippines and Indonesia—shares declined over 20% from their most recent peaks, entering bear market territory. In Japan, the Nikkei 225 plummeted 5.1%. In Singapore, the Straits Times Index fell 6.03%. In China, the CSI 300 Index lost 3%. In Hong Kong, the Hang Seng index sank 4.2%. In Pakistan, the PSX saw the largest ever intra-day plunge in the country's history, losing 2,302 points or 6.0%. The market closed with the KSE 100 Index down 3.1%. In India, the BSE SENSEX closed 1,942 points lower at 35,635 while the NSE Nifty 50 was down by 538 points to 10,451.
The Washington Post posited that pandemic-related turmoil could spark a collapse of the corporate debt bubble, sparking and worsening a recession. The Central Bank of Russia announced that it would suspend foreign exchange market purchases in domestic markets for 30 days, while the Central Bank of Brazil auctioned an additional $3.465 billion the foreign exchange market in two separate transactions and the Bank of Mexico increased its foreign exchange auctions program from $20 billion to $30 billion. After announcing a $120 billion fiscal stimulus programs on 2December, Japanese Prime Minister Shinzo Abe announced additional government spending, while Indonesian Finance Minister Sri Mulyani announced additional stimulus as well.
Black Thursday (12 March)
Black Thursday was a global stock market crash on 12 March 2020, as part of the greater 2020 stock market crash. US stock markets suffered from the greatest single-day percentage fall since the 1987 stock market crash. Following Black Monday three days earlier, Black Thursday was attributed to the COVID-19 pandemic and a lack of investor confidence in US President Donald Trump after he declared a 30-day travel ban against the Schengen Area. Additionally, the European Central Bank, under the lead of Christine Lagarde, decided to not cut interest rates despite market expectations, leading to a drop in S&P 500 futures of more than 200 points in less than an hour.
Bank Indonesia announced open market purchases of Rp4 trillion (or $276.53 million) in government bonds, while Bank Indonesia Governor Perry Warjiyo stated that Bank Indonesia's open market purchases of government bonds had climbed to Rp130 trillion on the year and Rp110 trillion since the end of January. Despite declining to cut its deposit rate, the European Central Bank increased its asset purchases by €120 billion (or $135 billion), while the Federal Reserve announced $1.5 trillion in open market purchases. Australian Prime Minister Scott Morrison announced a A$17.6 billion fiscal stimulus package. The Reserve Bank of India announced that it would conduct a six-month $2 billion currency swap for U.S. dollars, while the Reserve Bank of Australia announced A$8.8 billion in repurchases of government bonds. The Central Bank of Brazil auctioned $1.78 billion Foreign exchange spots.
Asia-Pacific stock markets closed down (with the Nikkei 225 of the Tokyo Stock Exchange, the Hang Seng Index of the Hong Kong Stock Exchange, and the IDX Composite of the Indonesia Stock Exchange falling to more than 20% below their 52-week highs), European stock markets closed down 11% (with the FTSE 100 Index on the London Stock Exchange, the DAX on the Frankfurt Stock Exchange, the CAC 40 on the Euronext Paris, and the FTSE MIB on the Borsa Italiana all closing more than 20% below their most recent peaks), while the Dow Jones Industrial Average closed down an additional 10% (eclipsing the one-day record set on 9March), the NASDAQ Composite was down 9.4%, and the S&P 500 was down 9.5% (with the NASDAQ and S&P 500 also falling to more than 20% below their peaks), and the declines activated the trading curb at the New York Stock Exchange for the second time that week. Oil prices dropped by 8%, while the yields on 10-year and 30-year U.S. Treasury securities increased to 0.86% and 1.45% (and their yield curve finished normal).
Crash
The US's Dow Jones Industrial Average and S&P 500 Index suffered from the greatest single-day percentage fall since the 1987 stock market crash, as did the UK's FTSE 100, which fell 10.87%. The Canadian S&P/TSX Composite Index dropped 12%, its largest one-day drop since 1940. The FTSE MIB Italian index closed with a 16.92% loss, the worst in its history. Germany's DAX fell 12.24% and France's CAC 12.28%. In Brazil, the IBOVESPA plummeted 14.78%, after trading in the B3 was halted twice within the intraday; it also moved below the 70,000 mark before closing above it. The NIFTY 50 on the National Stock Exchange of India fell 7.89% to more than 20% below its most recent peak, while the BSE SENSEX on the Bombay Stock Exchange fell 2,919 (or 8.18%) to 32,778. The benchmark stock market index on the Johannesburg Stock Exchange fell by 9.3%. The MERVAL on the Buenos Aires Stock Exchange fell 9.5% to 19.5% on the week. 12 March was the second time, following 9March, that the 7%-drop circuit breaker was triggered since being implemented in 2013.
In Colombia, the peso set an all-time low against the U.S. dollar, when it traded above 4000 pesos for the first time on record. The Mexican peso also set an all-time record low against the U.S. dollar, trading at 22.99 pesos.
Black Monday II (16 March)
Over the preceding weekend, the Saudi Arabian Monetary Authority announced a $13 billion credit-line package to small- and medium-sized companies, while South African President Cyril Ramaphosa announced a fiscal stimulus package. The Federal Reserve announced that it would cut the federal funds rate target to 0%–0.25%, lower reserve requirements to zero, and begin a $700 billion quantitative easing program.
Dow futures tumbled more than 1,000 points and Standard & Poor's 500 futures dropped 5%, triggering a circuit breaker. On Monday 16 March, Asia-Pacific and European stock markets closed down (with the S&P/ASX 200 setting a one-day record fall of 9.7%, collapsing 30% from the peak that was reached on 20 February). The Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500 all fell by 12–13%, with the Dow eclipsing the one-day drop record set on 12 March and the trading curb being activated at the beginning of trading for the third time (after 9and 12 March). Oil prices fell by 10%, while the yields on 10-year and 30-year U.S. Treasury securities fell to 0.76% and 1.38% respectively (while their yield curve remained normal for the third straight trading session).
The Cboe Volatility Index closed at 82.69 on 16 March, the highest ever closing for the index (though there were higher intraday peaks in 2008). Around noon on 16 March, the Federal Reserve Bank of New York announced that it would conduct a $500 billion repurchase through the afternoon of that day. Indonesian Finance Minister Sri Mulyani announced an additional Rp22 trillion in tax-related fiscal stimulus. The Central Bank of the Republic of Turkey lowered its reserve requirement from 8% to 6%. The Bank of Japan announced that it would not cut its bank rate lower from minus 0.1% but that it would conduct more open market purchases of Exchange-traded funds. After cutting its bank rate by 25 basis points on 7February, the Central Bank of Russia announced that it would keep its bank rate at 6%, while the Bank of Korea announced that it would cut its overnight rate by 50 basis points to 0.75%. The Central Bank of Chile cut its benchmark rate, while the Reserve Bank of New Zealand cut its official cash rate by 75 basis points to 0.25%. The Czech National Bank announced that it would cut its bank rate by 50 basis points to 1.75%.
Impact by region or country
Africa
In April 2020, Sub-Saharan Africa appeared poised to enter its first recession in 25 years, but this time for a longer duration.
The World Bank predicted that overall sub-Saharan Africa's economy would shrink by 2.1%–⁠5.1% during 2020.
African countries cumulatively owe $152 billion to China from loans taken 2000–2018; as of May 2020, China was considering granting deadline extensions for repayment, and in June 2020, Chinese leader Xi Jinping said that some interest-free loans to certain countries would be forgiven.
Botswana
Botswana has been affected by sharp falls in the diamond trade, tourism and other sectors.
Egypt
The Economy of Egypt suffered from the COVID-19 recession. Tourism, which employs one in ten Egyptians and contributes about 5% of the GDP, has largely stopped, while remittances from migrant workers abroad (9% of GDP) are also expected to fall. The cheap fuel prices and slower demand have also led some shipping companies to avoid the Suez Canal, and instead opt for traveling by the Cape of Good Hope, leading to reduced transit fees for the government.
Ethiopia
Ethiopia is heavily dependent for export income on its national carrier, Ethiopian Airlines, which has announced suspensions on 80 flight routes. Exports of flowers and other agricultural products have dropped sharply.
Namibia
Namibia's central bank sees the nation's economy shrinking by 6.9% This will be the biggest shrink of GDP since its independence in 1990. The tourism and hospitality industries has accounted for N$26 billion being lost as 125 000 jobs have been affected. The central bank also announced that the diamond-mining sector will decline by 14.9% in 2020, while uranium mining may shrink 22%.
Zambia
Zambia faced a severe debt crisis. Almost half the national budget goes towards interest payments, with questions about whether the country will be able to make all future payments.
Americas
Argentina
Argentina entered its 9th sovereign default in history due to the recession. The government has proposed taking over one of the largest agroexporting companies Vicentín S.A.I.C after it incurred in a debt of more than $1.35 billion.
Belize
The fall in travel is expected to drive Belize into a deep recession in 2020.
Brazil
The Brazilian government forecast that its economy will experience its biggest crash since 1900, with a gross domestic product contraction of 4.7%.
At the first trimester of 2020 the gross domestic product was 1.5% smaller than the GDP of the first trimester of 2019, and it decreased to the same level of 2012.
On 9 April 2020, at least 600,000 businesses went bankrupt, and 9 million people were fired.
Even with the pandemic, the state of São Paulo was the only Brazilian state to see a GDP growth in 2020, of about 0.4%.
Canada
Total unemployment increased by 3 million and total hours worked fell by 30% between February and April 2020. Canadian manufacturing sales in March fell to the lowest level since mid-2016, as sales by auto manufacturers and parts suppliers plunged more than 30%.
In response, the government of Canada introduced several benefits, including the Canada Emergency Response Benefit, the Canada Emergency Student Benefit, and the Canada Emergency Wage Subsidy.
By June 2020, the national unemployment rate in Canada was 12.5%, down from 13.7% in May.
Mexico
Mexico's outlook was already poor before the COVID-19 pandemic, with a mild recession in 2019. The economic development plans of president Andrés Manuel López Obrador were predicated on revenue from the state oil company Pemex, but the oil price collapse has now raised doubts on those plans. Beyond oil, the country's economy also relies on tourism, trade with the United States, as well as remittances, which all are also being affected. All of this leading to what could be Mexico's worst recession in a century, and the worst in Latin America after Venezuela. Beside this prediction, Mexico's economy shrinking in 2020 was less than that of Venezuela, Peru, Panama, Argentina and equal to that of Ecuador.
United States
The National Bureau of Economic Research, considered the arbiter of recession declarations, found the United States recession began in February 2020 and ended two months roughly later, in April 2020, making it the shortest recession on records dating to 1854.
Before the pandemic, there were signs of recession. The US yield curve inverted in mid-2019, usually indicative of a forthcoming recession.
Starting in March 2020, job loss was rapid. About 16 million jobs were lost in the United States in the three weeks ending on 4April. Unemployment claims reached a record high, with 3.3 million claims made in the week ending on 21 March. (The previous record had been 700,000 from 1982.) The week ending 28 March, however, unemployment claims set another record at 6.7 million and by 13 May, new claims had topped 35 million. On 8 May, the Bureau of Labor Statistics reported a U-3 unemployment (official unemployment) figure of 14.7%, the highest level recorded since 1941, with U-6 unemployment (total unemployed plus marginally attached and part-time underemployed workers) reaching 22.8%.
For individual states, the Bureau of Labor Statistics reported the highest U-3 unemployment occurred in April 2020 in Nevada (30.1%), Michigan (24.0%) and Hawaii (23.8%), levels not seen since the Great Depression. This was followed by Rhode Island in April (18.1%), Massachusetts in June (17.7%), and Ohio in April (17.6%). By December 2020, unemployment rates for the highest three states were recovering: Nevada (9.2%), Michigan (7.5%), and Hawaii (9.3%), with seven other states having recovered to below 4.0%. However, a high percentage of those gains may have been part-time work, job gains in May 2020 were reported to be 40% part-time.
Restaurant patronage fell sharply across the country, and major airlines reduced their operations on a large scale. The Big Three car manufacturers all halted production. In April, construction of new homes dropped by 30%, reaching the lowest level in five years.
Approximately 5.4 million Americans lost their health insurance from February to May 2020 after losing their jobs.
The St. Louis Fed Financial Stress Index increased sharply from below zero to 5.8 during March 2020. The United States Department of Commerce reported that consumer spending fell by 7.5 percent during the month of March 2020. It was the largest monthly drop since record keeping began in 1959. As a result, the country's gross domestic product reduced at a rate of 4.8 percent during the first quarter of 2020.
The largest economic stimulus legislation in American history, a $2 trillion (~$ in ) package called the CARES Act, was signed into law on 27 March 2020.
The Congressional Budget Office reported in May 2020 that:
The unemployment rate increased from 3.5% in February to 14.7% in April, representing a decline of more than 25 million people employed, plus another 8 million persons that exited the labor force.
Job declines were focused on industries that rely on "in-person interactions" such as retail, education, health services, leisure and hospitality. For example, 8 of the 17 million leisure and hospitality jobs were lost in March and April.
The economic impact was expected to hit smaller and newer businesses harder, as they typically have less financial cushion.
Real (inflation-adjusted) consumer spending fell 17% from February to April, as social distancing reached its peak. In April, car and light truck sales were 49% below the late 2019 monthly average. Mortgage applications fell 30% in April 2020 versus April 2019.
Real GDP was forecast to fall at a nearly 38% annual rate in the second quarter, or 11.2% versus the prior quarter, with a return to positive quarter-to-quarter growth of 5.0% in Q3 and 2.5% in Q4 2020. However, real GDP was not expected to regain its Q4 2019 level until 2022 or later.
The unemployment rate was forecast to average 11.5% in 2020 and 9.3% in 2021.
The COVID recession increased wealth and racial inequality. According to a study, the pandemic drove 8 million Americans into poverty between May and September 2020. On 30 July 2020, it was reported that the U.S. 2nd quarter gross domestic product fell at an annualized rate of 33%.
Latin America
The recession caused by COVID-19 is expected to be the worst in the history of Latin America.
Latin American countries are expected to fall into a "lost decade", with Latin America's GDP returning to 2010 levels, falling by 9.1%.
The amount by which the GDP is expected to fall per country is listed below.
Other sources may expect different figures.
In Panama, COVID-19 is expected to subtract US$5.8 billion from Panama's GDP. Aiding Chile's downfall is reduced demand for copper from the US and China due to COVID-19.
Asia-Pacific
Australia
Australia before the recession was suffering from an unusually severe and expensive bushfire season which damaged the economy and domestic trade routes. Not only that, but Australia had experienced significant slowdown in their economic growth, with economists in late 2019 saying that Australia was 'teetering on the edge of a recession'. As a result of this and the effects of the recession, analysts in Australia expected a deep recession with at least 10.0% of the able working population becoming unemployed according to the Australian treasury and at least a 6.7% GDP retraction according to the IMF. In April 2020, a water consultant predicted a shortage of rice and other staples during the pandemic unless farmers' water allocations were changed.
The unemployment level of 5.1% was projected to rise to a 25-year high of 10.0%, according to Treasury data released in April 2020. The JobSeeker Payment unemployment benefit had an A$550 per fortnight Coronavirus Supplement added to it from April to September, when it reduced to A$250, then to A$150 after 31 December. The Supplement ceased on 31 March 2021.
As of April 2020, up to a million people have been laid off due to effects of the recession. Over 280,000 individuals applied for unemployment support at the peak day.
On 23 July 2020, Treasurer Josh Frydenberg delivered a quarterly budget update stating the government had implemented a $289 billion (~$ in ) economic support package. As a result, the 2020–21 budget will record a $184 billion (~$ in ) deficit, the largest since WWII. Australia will maintain their triple A credit rating. Net debt will increase to $677.1 billion (~$ in ) at 20 June 2021. Further, real GDP was forecast to have fallen sharply by 7% in the June quarter with unemployment anticipated to peak at 9.25% in the December quarter. However, due to the further reinstatement of restrictions on Victoria, notably stage 4 restrictions, national unemployment was expected to reach 11%.
In August 2020, national unemployment peaked at 7.5%, falling to 5.6% by April 2021. In December 2020, it was announced Australia had pulled out of recession after experiencing a 3.3% growth in GDP in the September quarter. Treasurer Frydenberg however stated the effects of the recession has had lasting impacts and the recovery is far from over. Australia is set to avoid an economic depression as once forecast earlier in the year, though GDP is still likely to have experienced a contraction from 2019 figures.
Bangladesh
Bangladesh is one of the few countries who had a generally positive gdp growth during the pandemic. The Bangladeshi economy is heavily dependent on the garment industry and remittances from migrant workers. The garment industry has been heavily affected, having already been contracting in 2019. Remittances in turn expected to fall 22 percent.
China
As a result of the recession, China's economy contracted for the first time in almost 50 years. The national GDP for the first quarter of 2020 dropped 6.8% year-on-year, 10.0% quarter on quarter, and the GDP for Hubei Province dropped 39.2% in the same period.
In May 2020, Chinese Premier Li Keqiang announced that, for the first time in history, the central government would not set an economic growth target for 2020, with the economy having contracted by 6.8% compared to 2019 and China facing an "unpredictable" time. However, the government also stated an intention to create 9 million new urban jobs until the end of 2020.
In October 2020, it was announced that China's third-quarter GDP has grown with 4.9%, hereby missing analysts expectations (which was set at 5.2%). However, it does show that China's economy has indeed been steadily recovering from the coronavirus shock that caused decades-low growth. To fuel economic growth, the country set aside hundreds of billions of dollars for major infrastructure projects and used population tracking policies and enforced the stringent lockdown to contain the virus. It is the only major economy that is expected to grow in 2020, according to the International Monetary Fund.
By December 2020, China's economic recovery was accelerating amid increasing demand for manufactured goods. The UK-based Centre for Economics and Business Research projected that China's "skilful management of the pandemic" would cause the Chinese economy to surpass the United States and become the world's largest economy by nominal GDP in 2028, five years sooner than previously expected. China's economy expanded by 2.3% in 2020.
In the first quarter of 2020, China's economy shrank by 6.8% due to the nationwide lockdown at the peak of the COVID-19 outbreak. With the help of strict virus containment measures and emergency corporate relief, the economy has steadily recovered since the pandemic. China's economy grew by a record 18.3 percent in the first quarter of 2021 compared with the same period last year.
The urban unemployment rate reached a 21-month all-time high of 6.1% in April 2022 amid the impact of the epidemic.
Korea
Korea's gross domestic product (GDP) growth rate in the second quarter of 2020 fell 3.3 percent from the previous quarter. This is the second consecutive quarter of negative growth following the first quarter (−1.3 percent). It was the lowest performance in 22 years and three months since the first quarter of 1998 (−6.8 percent) after the 1997 Asian financial crisis. Experts cited exports, which account for 40 percent of the Korean economy, as the worst performance report in 57 years since 1963, as the main factor for negative growth.
The employment market situation is also a big blow. According to the National Statistical Office, the number of employed people decreased by more than 350,000 in June from a year earlier due to the shock of the job market caused by the spread of COVID-19. The unemployment rate soared to the highest since 1999 when the statistics began to be compiled. In particular, the number of economically active young people decreased a lot, and the number of unemployed reached 1.66 million, up 120,000 from a year earlier.
Fiji
On 18 March, the Reserve Bank of Fiji reduced its overnight policy rate (OPR) and predicted the domestic economy to fall into a recession after decades of economic growth. Later on 25 June, the national bank predicted the Fijian economy to contract severely this year due to falling consumption and investment associated with ongoing job-losses. Annual inflation remained in negative territory in May (−1.7%) and is forecast to edge up to 1.0 percent by year-end.
India
The IMF predicted the growth rate of India in the financial year of 2020–21 as 1.9%, but in the following financial year, they predict it to be 7.4%. IMF also predicted that India and China are the only two major economies that will maintain positive growth rates. However the prediction later turned out to be wrong.
On 24 June 2020, IMF revised India's growth rate to −4.5%, a historic low. However, IMF said India's economy is expected to bounce back in 2021 with a robust six percent growth rate.
On 31 August 2020, the National Statistical Office (NSO) released the data, which revealed that the country's GDP contracted by 23.9 per cent in the first quarter of 2020–21 financial year. The economic contraction followed the severe lockdown to contain the COVID-19 pandemic, where an estimated 140 million jobs were lost. According to the Organization for Economic Co-operation and Development, it was the worst fall in history.
Iraq
As 90% of the government income comes from oil, it will be extremely heavily hit by the drop in prices.
The employment market has also taken a huge hit. The excessive dependence on oil exposes the country to macroeconomic volatility. As of January 2021, Iraq's unemployment rate was more than 10 percentage points higher than its pre-COVID-19 level of 12.7%.
Japan
In Japan, the 2019 4th quarter GDP shrank 7.1% from the previous quarter due to two main factors. One is the government's raise in consumption tax from 8% to 10% despite opposition from the citizens. The other is the devastating effects of Typhoon Hagibis, the strongest typhoon in decades to strike mainland Japan. It was the costliest Pacific typhoon on record. Japanese exports to South Korea were also negatively affected by the Japan–South Korea trade dispute, lowering aggregate demand and GDP growth. This all adds to the effect of the pandemic on people's lives and the economy, the prime minister unveiling a 'massive" stimulus amounting to 20% of GDP.
Lebanon
Since August 2019, Lebanon had been experiencing a major economic crisis that was caused by an increase in the official exchange rate between the Lebanese pound and the United States dollar. This was further escalated by a large explosion in Beirut, which delivered critical damage to the Port of Beirut, harming Lebanese trade, and protests throughout the country.
Malaysia
Nepal
As millions of Nepalis work outside of the country, at least hundreds of thousands are expected to return due to layoffs abroad, in what has been labelled a "crisis" that may "overwhelm the Nepali state".
New Zealand
In April 2020, the New Zealand Treasury projected that the country could experience an unemployment rate of 13.5 percent if the country remained in lockdown for four weeks, with a range of 17.5 and 26 percent if the lockdown was extended. Prior to the lockdown, the unemployment rate was at 4.2%. Finance Minister Grant Robertson vowed that the Government would keep the unemployment rate below 10%. In the second quarter of 2020, unemployment fell 0.2 percentage points to 4 percent; however, the under-use rate (a measure of spare capacity in the labor market) rose to a record 12 percent, up 1.6 percentage points from the previous quarter, and working hours fell by 10 percent.
The GDP of New Zealand contracted 1.6 percent in the first quarter of 2020. The country officially entered a recession after a GDP contraction of 12.2% in the second quarter of 2020 which was reported by Statistics New Zealand in September.
Philippines
The Philippines' real GDP contracted by 0.2% in the first quarter of 2020, the first contraction since the fourth quarter of 1998, a year after the 1997 Asian financial crisis. The economy slipped in technical recession after a 16.5% decline was recorded in the second quarter.
The government projects that the GDP will contract by 5.5% in 2020. The First Metro Investment Corp projects a year-on-year GDP decline of 8–9%. The decline is led by a decrease in household spending which typically accounts for 70% of the country's GDP and hesitancy on spending due to COVID-19 community quarantine measures.
In its annual economic performance report released on 28 January 2021, the Philippine Statistics Authority reported that the Philippines' GDP contracted by 9.5% in 2020, its worst contraction since World War II. The last full-year contraction was during the 1997 Asian financial crisis where the GDP grew by −0.5%. The 2020 contraction was also worse than the 7% contraction in 1984.
Singapore
Property investment sales in Singapore fell 37 per cent to $3.02 billion in the first quarter of this year from the previous three months as the pandemic took its toll on investor sentiment, a report from Cushman & Wakefield on 13 April showed.
On 28 April, the Monetary Authority of Singapore (MAS) said in its latest half-yearly macroeconomic review Singapore will enter into a recession this year because of the blow from the COVID-19 pandemic, resulting in job losses and lower wages, with "significant uncertainty" over how long and intense the downturn will be. Depending on how the pandemic evolves and the efficacy of policy responses around the world, Singapore's economic growth could even dip below the forecast range of minus four to minus one per cent to record its worst-ever contraction.
On 29 April, the Ministry of Manpower (MOM) said that total employment excluding foreign domestic workers dropped by 19,900 in the first three months of the year, mainly due to a significant reduction in foreign employment. Among Singapore citizens, the unemployment rate increased from 3.3 per cent to 3.5 per cent, while the resident unemployment rate, which includes permanent residents, increased from 3.2 per cent to 3.3 per cent.
On 14 May, Singapore Airlines (SIA) posted its first annual net loss in 48 years a net loss of S$732.4 million in the fourth quarter, reversing from a net profit of S$202.6 million in the corresponding quarter a year ago.
Europe
The European Purchasing Managers' Index, a key indicator of economic activity, crashed to a record-low of 13.5 in April 2020. Normally, any figure below 50 is a sign of economic decline.
Armenia
The Armenian economy shrank sharply by 7.6%, erasing all the gains from 2019.
Belarus
The Belarusian economy is being negatively affected by the loss of Russian oil subsidies, and the drop in price of Belarus's refined oil products.
France
France has been hit hard by the pandemic, with two months of 'strict lockdown' imposed before mid-year. On 8 April 2020, the Bank of France declared that the French economy was in recession, shrinking by 6 percent in the first quarter of 2020.
At the end of the second trimester of 2020, several companies began staff cuts: Nokia (1233 jobs), Renault (4600 jobs), Air France (7580 jobs), Airbus (5000 jobs), Derichebourg (700 jobs), TUI France (583 jobs) and NextRadio TV (330–380 jobs).
Italy
Italy's unemployment rate is expected to rise to 11.2%, with 51% fearing unemployment in March.
The preliminary estimate of 1Q20 Italian GDP showed a 4.7% quarter on quarter fall (−4.8% YoY), a much steeper decline than in any quarter either during the Great Recession or the European debt crisis.
United Kingdom
On 19 March 2020 the Bank of England cut the interest rate to a historic low of 0.1%. Quantitative easing was extended by £200 billion to a total of £645 billion since the start of the Great Recession. A day later, the Chancellor of the Exchequer Rishi Sunak announced the government would spend £350 billion to bolster the economy. On 24 March non-essential business and travel were officially banned in the UK to limit the spread of SARS-CoV-2. In April the Bank agreed to extend the government's overdraft facility from £370 million to an undisclosed amount for the first time since 2008. Household spending fell 41.2% in April 2020 compared with April 2019. April's Purchasing Managers' Index score was 13.8 points, the lowest since records began in 1996, indicating a severe downturn of business activity.
By the start of May, 23% of the British workforce had been furloughed (temporarily laid off). Government schemes were launched to help furloughed employees and self-employed workers whose incomes had been affected by the outbreak, effectively paying 80% of their regular incomes, subject to eligibility. The Bank estimated that the UK economy could shrink 30% in the first half of 2020 and that unemployment was likely to rise to 9% in 2021. Economic growth was already weak before the COVID-19 pandemic, with 0% growth in the fourth quarter of 2019. On 13 May, the Office for National Statistics announced a 2% fall in GDP in the first quarter of 2020, including a then-record 5.8% monthly fall in March. The Chancellor warned it was very likely the UK was going through a significant recession.
HSBC, which is based in London, reported $4.3 billion (~$ in ) in pre-tax profits during the first half of 2020; this was only one-third of the profits it had taken in the first half of the previous year.
On 12 August, it was announced that the UK had entered into recession for the first time in 11 years.
During the pandemic, exports of many food and drink products from the UK declined significantly, partly because the hospitality industry worldwide experienced a major slump. According to news reports in February 2021, the Scotch whisky sector alone had experienced £1.1 billion in lost sales.
Tourism in the UK (by visitors from both the UK and from other countries) declined substantially due to travel restrictions and lockdowns. For much of 2020, and into 2021, vacation travel was not permitted and entry into the UK was very strictly limited. Business travel, for example, declined by nearly 90% over previous years. This not only affected revenue from tourism but also led to numerous job losses.
Middle East
In the Middle East, the economic situation in the United Arab Emirates and Saudi Arabia deteriorated more than any other country in the region. Relying highly on tourism, Dubai was one of the first to reopen tourism. However, by January 2021, a significant surge in Covid cases in the UAE was observed, while several countries across the world also began to blame the Emirati city for spreading the virus abroad.
On the other hand, the economy of the world's largest oil exporter, Saudi Arabia, faced a deep recession, due to the COVID-19 pandemic. In the second quarter, Saudi's economy shrank by 7 per cent, hitting both the oil and non-oil sectors. Besides, unemployment during the quarter also hit a record high of 15.4 per cent. For the third quarter, the Kingdom didn't release its labor market report for the assessment of the unemployment rate. In January 2021, it was reported that Saudi was supposed to release the data on citizen unemployment in December 2020. However, it was delayed four times, before the officials permanently removed the release date from the Saudi statistics authority's website.
Impact by sector
Various service sectors have been hit particularly hard by the COVID-19 recession.
Automotive industry
New vehicle sales in the United States have declined by 40%. The American Big Three have all shut down their US factories. The Automotive industry in Germany suffered after having already suffered from the Volkswagen emissions scandal, as well as competition from electric cars.
Energy
The demand shock to oil was so severe that the price of American oil futures contracts became negative (bottoming out at $-37.63 per barrel on the West Texas Intermediate), as traders started paying for buyers to take the product before storage capacity ran out. This was despite an earlier OPEC+ deal which cut world production by 10% and ended the 2020 Russia–Saudi Arabia oil price war.
Tourism
The global tourism industry may shrink up to 50% due to the pandemic.
Restaurants
The COVID-19 pandemic has impacted the restaurant business. In the beginning of March 2020, some major cities in the US announced that bars and restaurants would be closed to sit-down diners and limited to takeout orders and delivery. Some employees were fired, and more employees lacked sick leave in the sector compared to similar sectors.
Retail
Shopping centers and other retailers around the world have reduced hours or closed down entirely. Many were expected not to recover, thereby accelerating the effects of the retail apocalypse. Department stores and clothing shops have been especially hit.
Transportation
The pandemic has had a significant impact on the aviation industry due to the resulting travel restrictions as well as slump in demand among travelers. Significant reductions in passenger numbers have resulted in planes flying empty between airports and the cancellation of flights.
The following airlines have gone bankrupt or into administration:
Compass Airlines
Flybe
Trans States Airlines
Virgin Australia
Air Mauritius
Alitalia
Avianca
LATAM
South African Airways
Montenegro Airlines
The cruise ship industry has also been heavily affected by a downturn, with the share prices of the major cruise lines down 70–80%.
U.S. impact by occupation and demographic
Differences across occupations caused difference in the economic effects across groups. Certain jobs were less suitable for remote work, e.g. because they involve working with people closely or with particular materials. Women tended to be affected more than men. The employment of immigrants in the U.S. declined more than for the native-born partly because the kinds of job immigrants held. Inequity in economic impact on workers in similar professions occurred when employees laid-off completely were awarded both State unemployment benefits and up to $600/week in federal pandemic assistance which together could equal or exceed pre-layoff income while peers reduced to part-time employment struggled, ineligible for either unemployment insurance compensation or the accompanying pandemic payments.
Food insecurity
Unlike the Great Recession, it is expected that the COVID-19 recession will also affect the majority of developing nations. On 21 April, the United Nations World Food Programme warned that a famine "of biblical proportions" was expected in several parts of the world as a result of the pandemic. The release of 2020 Global Report on Food Crises indicated that 55 countries were at risk, with David Beasley estimating that in a worst-case scenario "about three dozen" countries would succumb to famine. This is particularly an issue in several countries affected by war, including the Yemeni Civil War, the Syrian civil war, insurgency in the Maghreb and the Afghanistan Conflict and occurs on a background of the 2019 locust infestations in East Africa. Nestlé, PepsiCo, the United Nations Foundation and farmers' unions have written to the G20 for support in maintaining food distributions to prevent food shortages. It is estimated that double the number of people "will go hungry" when compared to pre-pandemic levels.
The United Nations forecasts that the following member states will have significant areas with poor food security categorised as under "stress" (IPC phase 2), "crisis" (IPC phase 3), "emergency" (IPC phase 4) or "critical emergency" (IPC phase 5) in 2020:
It also raises alerts around:
On 9 July, Oxfam released a report warning that "12,000 people per day could die from COVID-19 linked hunger" by 2021, estimating an additional 125 million people are at risk of starvation due to the pandemic. In particular the report highlighted "emerging epicentres" of hunger, alongside famine-stricken areas, including areas in Brazil, India, Yemen and the Sahel.
National fiscal responses
Several countries have announced stimulus programs to counter the effects of the recession. Below is a summary table based on data from the International Monetary Fund (unless otherwise specified).
See also
2020s in economic history
Economic impact of the COVID-19 pandemic
Financial market impact of the COVID-19 pandemic
Green recovery
Lists of recessions
References
Recessions
2020s economic history
2020 in economics
2021 in economics
2020 in international relations
2021 in international relations
Economic impact of the COVID-19 pandemic
Economic impact of the COVID-19 pandemic in the United States
Recessions in the United States